Bill Would Require Public-Sector Unions to Disclose Finances

Many Americans are wondering how a corporation like Enron could legally conceal so much about its shady financial dealings.  These same Americans would be astonished to learn that labor unions disclose far less about how they spend their money—even though their funding is legally mandatory, paid to them in the form of union dues amounting to an estimated $13 billion per year nationwide. 

A bill currently under consideration by the Michigan House of Representatives would require the state's public-sector unions to disclose their finances to the same degree of detail as publicly held corporations.  The measure is long overdue.

It would enable just over one-third of Michigan's unionized workforce—some 321,500 workers—to receive an accounting, for the first time ever, of precisely how their unions are spending their mandatory dues.  While the state's remaining 616,800 union members—those in the private sector—will have to await federal legislation in order to receive the same accounting, the bill still would provide a substantial remedy to a long-festering problem.

Here in Michigan, unions take in around $280 million in dues each year.  While it seems reasonable to expect that the United Auto Workers or the American Federation of State, County and Municipal Employees would be legally accountable for what they do with money taken from workers' paychecks, the fact is that they are not.

Private-sector unions file financial reports with the U.S. Department of Labor (DOL) and the IRS, while public-sector unions report only to the latter.  While the information required on DOL's "LM-2" and the IRS's "Form 990" is extensive, loose categorization leaves enough wiggle room to hide questionable activities.

For example, the Michigan Education Association's LM-2 for 1999 (this public-sector union files with the DOL because it also represents some employees at private colleges) shows that the union spent $284,645 on "Leadership Development," which might include political training.  It spent $548,219 on "Committees and Task Forces," which may or may not include groups working on party politics. 

Teachers exercising their right not to have their dues spent for  purposes with which they disagree—a right guaranteed under the U.S. Supreme Court's Hudson decision—have to travel to Washington, D.C. and wade through 34,000 hard-copy files (which are not on line, nor are they even computerized) to find this information.  And even if they find it, they can't tell from the way in which the spending is categorized whether or not their rights are being violated. 

To remedy this situation for two-thirds of Michigan's unionized workers—those working in the private sector—would require changes in the federal Labor Management Reporting and Disclosure Act (LMRDA).  On the other hand, the LMRDA doesn't apply to state or local employees.  At the state level, Michigan possesses no significant requirements for labor union financial disclosure. 

The bill now being considered by the House Employment Relations, Training and Safety Committee would amend Michigan's Public Employment Relations Act (PERA) to require public-sector unions to report their financial dealings, detailing spending according to functional categories such as contract negotiation, grievance processing, campaign contributions, public relations, and organizing expenses.  An annual, independent audit of these reports would assure accuracy and consistency.   

Such an amendment could make it an "unfair labor practice" for a union to fail or refuse to prepare such a report.  Remedies for refusal to provide financial information could include a return of all dues collected during the period when disclosure should have occurred, and employee elections to decide whether to remove or replace the union in case of repeated refusals.    

Amending PERA in this way would give public-sector union members a new understanding of how their locals operate, which would assist them in challenging union officers who are not doing their jobs well.  All workers would benefit from an atmosphere of openness and accountability that discourages misuse of funds and brings union politics into the open.

The result would be stronger unions with less waste and a renewed focus on the workplace concerns of union members.

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(Robert P. Hunter is director of labor policy and Paul S. Kersey is labor policy research associate at the Mackinac Center for Public Policy.  Permission to reprint in whole or in part is hereby granted, provided the authors and their affiliation are cited.)